Last week we started a new blog series on the cost of e-commerce accounting, and this week we’re continuing that series with a post on factors that drive your firm’s cost up or down.
It seems obvious to say that the more complex your accounting is, the more it will cost you to outsource to a firm, but today we’re going to break down what constitutes “complexity” in the e-commerce industry.
The volume of data that exists for a firm to work with is the number one factor that makes accounting more expensive.
This could look like a high number of transactions (doing tens versus hundreds of sales in a month), a large number of accounts (several credit cards or bank connections), or multiple sales channels (Amazon, Shopify, eBay, Wal-Mart).
Since your accounting team will be reconciling every transaction your business processes, more transactions, sales channels, and accounts = more work to be done. Tyler explains more below.
There are two main types of complexity that affect the amount of work needed from your accountant: inventory complexity and currency complexity.
Inventory complexity involves the actual physical inventory of a business, but it also includes any accounts payable that is part of your inventory management.
Entities that sell a huge catalog of products with different SKUs will take longer to sift through and reconcile than a business with a few select products. Likewise, owing accounts payable to multiple vendors will also cause your accounting team to spend time tracking down invoices and configuring data.
If you own a business with sales channels in multiple countries, your team will also have to deal with multiple currencies. That means spending work hours converting sales to USD and adding one extra step to the reconciliation process.
Often when a business has multiple partners, it means the accounting team has to track down information from several sources. And when things aren’t flowing quickly, the amount of work the team is able to do backs up and becomes less efficient.
A high number of loans can also have the same effect, since multiple loans means multiple accounts to balance, and by extension, multiple points of contact.
In addition to the complicating factor of how many people your accounting team will have to communicate with, having multiple loans also creates some hurdles in the reconciliation process.
Loans, plainly speaking, create bills. Every time you take out a loan, you’re creating a new set of parameters for your business’s financials to follow, and these could be different for every loan you enter into.
It makes sense, then, that the more loans your company is obligated to, the trickier your accounting becomes. While one vendor may require payment on receipt of goods, another could require an upfront payment with a remaining balance, and still another may allow you to pay off your debt in installments.
It’s easy to see how these types of debt repayment structures can bog down the speed of your accounting. If you expect your accountant to be able to advise you on the status of your outstanding loans, having fewer accounts to keep track of will make their job (and yours) less stressful.
A really successful relationship with your accounting firm boils down to two things: access to data and communication.
As explained many times above, your accounting team needs access to your accounts in order to do their job. One of the biggest efficiency issues we as a team at Seller Accountant have is when we’ve lost access to or need permission to access a certain account, be it a bank, short term lending, sales channel, or Amazon Seller Central.
Life as a business owner can be hectic, and there’s no shortage of daily emails, but if your accountant requests access to an account, take the two minutes right then and send it their way. Those two minutes will save hours, if not days, of time for your team to work on reconciling your books.
Conversely, if you need something from your accountant, don’t hesitate to ask. Ultimately your team is there to serve your needs, and they are generally more than happy to answer questions and send over statements or other information should you need them.
Complex Accounting = Higher Prices
There are quite a few ways to complicate your accounting, and we’ve covered many of them here. It’s safe to say that the more of these items your business deals with, the more costly your service is likely to be. But ultimately, outsourcing to a specialized e-commerce accounting firm is meant to make your life easier, and if you’re someone who would rather not deal with the numbers yourself, you’re likely to find the help of a knowledgeable accountant is well worth the price.
Check out the other posts in this series:
What does it take to do e-commerce accounting correctly?
How should you optimize your business for outsourcing?
How much should you expect to pay for an outsourced accounting service?